African airlines post sluggish take-off

13 May 2014

Africa Review

The number of foreign passengers ferried by African airlines nearly stagnated in the first quarter of 2014, due to high fares and rising competition from big international players.

New data released by International Air Transport Association (IATA), the global lobby, shows that African airlines posted a paltry 0.2 per cent growth in passenger numbers while traffic on African routes among European and Middle East carriers rose.

Passenger numbers from Africa in European carriers rose by 4.7 per cent in the quarter, while North American airlines saw demand rise 0.6 per cent.

Middle East carriers had the strongest traffic growth, which shot up 13.8 per cent as they continued to benefit from the strength of regional economies and solid growth in business-related premium travel.

The Gulf nations are benefiting from acceleration in the non-oil sectors of their economies and positive developments in sectors such as trade, transport and tourism. Latin America carriers registered a rise of 4.5 per cent in March 2014 compared with last year.

The African market is increasingly attracting new suitors. Kenya Airways (KQ), for example, faces fierce competition, especially in African skies, from Ethiopian Airlines and Middle East carriers like Emirates, Etihad and Qatar - all substantially bankrolled by their governments. KQ derives only five per cent of its revenue from Kenya, 49 per cent from Africa and the rest from Asia and the Middle East.

South African Airways and Arik Air of Nigeria have also been going for a bigger slice of the cake, especially within the Southern and West African regions.

High taxes and charges are also eroding the industry's competitiveness in Africa. On average, jet fuel is 21 per cent more expensive in Africa than in the rest of the world. Infrastructure, much of which is below international standards, also contributes to the high-cost environment.

"We are under pressure from international airlines; we need stronger local airlines," said the chief executive of Air Uganda, Cornwell Muleya.

Experts said the weakness in international air travel could be partly as a result of the adverse economic developments in some parts of the continent, like the slowdown in South Africa, insecurity in eastern and Northern Africa and high cost of doing business.

Experts said airlines might also be forced to halt aircraft orders as tourists numbers shrink, and as taxes eat into profits.

Negative impact
Kenya Airways for example, is due to receive five Boeing B787-8 Dreamliners this year. The airline faces an estimated tax bill of over Ksh14 billion ($160 million) for the new acquisitions following the introduction of a new VAT on large aircraft by Kenya's Parliament.

"There will be a huge negative impact since all KQ aircraft, if purchased, are now taxable. Spares and engines are also taxable under this new legal regime," KQ said in a statement.

Such taxes give international airlines a chance to operate comfortably, ferrying traffic from Africa to other regions, experts said.

Africa accounts for 20 per cent of the total traffic from the continent, as competitors from other regions take the lion share.

If these challenges are not addressed, competitors will benefit from a foreseen growth in Africa's air travel market.

According to the African Development Bank, by 2030, Africa's new middle class will exceed 300 million and spend around $2.2 trillion in a year, equivalent to about 3 per cent of worldwide consumption.

This will trigger big air travel both for business and leisure. Passenger numbers are expected to grow from the current 67.7 million to 150.3 million by 2030.

"African aviation may not fully realise a positive outlook unless the industry partners with government to create the right environment and eliminate the challenges of safety, market access, infrastructure constraints, high taxes, charges and fees and human capital development," said Raphael Kuuchi, IATA vice president for Africa.

Original article by Scola Kamau

Category: Transport

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